Learning Care Group, Inc. Business Information, Profile, and History

Company Perspectives:

Our mission is to develop innovative learning care solutions which en able us to grow the number of children and families served, and to be recognized as the premier child and family education corporation in the world. Through our leadership and passion, we will: provide a sec ure, caring and enriched environment that promotes learning and the d evelopment of the whole child; develop lifelong relationships, create family solutions, and enhance the quality of life for our families; provide a fun, challenging work environment that fosters teamwork, in spires professional excellence, and encourages contribution by all te am members; leverage technology to develop innovative learning produc ts and solutions; provide superior levels of support and service to o ur franchisees; and achieve the best financial performance in the ind ustry, allowing us to fulfill our mission.

History of Learning Care Group, Inc.

Learning Care Group, Inc., formerly known as Childtime Learning Cente rs, Inc., offers child-care, preschool, and school-age educational se rvices through its network of more than 459 centers in 23 states and the District of Columbia. Learning Care Group also has franchised loc ations in Hong Kong, the Philippines, and Indonesia. The company serv es more than 30,000 families and provides care for children aged 6wee ks to 12 years through its learning centers and employer-sponsored, a t-work facilities. Learning Care Group nearly doubled in size with it s acquisition of Tutor Time Learning Centers Inc. in 2002.

Building Business in the Early Years: 1967-90

What eventually evolved into Childtime Learning Centers was founded i n Illinois in 1967. The child-care firm was acquired by Michigan-base d baby food manufacturer Gerber Products Company in 1973, and the nam e was changed to Gerber Children's Centers, Inc. The company grew swi ftly and expanded into New York, Illinois, California, Florida, Oklah oma, Ohio, Michigan, Maryland, Virginia, Georgia, Texas, and Arizona by the late 1980s.

Gerber was a pioneer in the development of employer-sponsored child-c are services, opening its first corporate child-care center in 1981 a t the Hurley Medical Center in Flint, Michigan. The center provided d aycare and child-care services to employees of the hospital as well a s members of the community. Gerber followed up the success of the Hur ley center with centers at the Fresno Hospital in Fresno, California, in 1983, on the campus of Prince Georges Community College in 1984, at Mercy Hospital in Oklahoma City, Oklahoma, in 1986, and at Henry F ord Hospital in Detroit, Michigan, in 1987. In early 1990 Gerber open ed a center at Edward W. Sparrow Hospital in Lansing, Michigan, and o ne at William Beaumont Hospital, located in Royal Oak, Michigan. The Beaumont facility turned a profit after only six months in operation.

Gerber Children's Centers built a reputation for focusing on educatio n, but its rapid expansion and what some in the industry viewed as po or management led to financial struggles in the late 1980s. The busin ess suffered losses of about $3 million, and enrollment sagged--t he centers, which numbered 115 in 1990, operated at about 60 percent of capacity at best, and 19 of the total were only half full. Attenti on from parent company Gerber Products was lacking as well; Gerber Pr oducts had diversified to the detriment of its primary business of ba by food, and in the late 1980s the company began to shed its unprofit able, noncore operations, which included a trucking firm and business es that manufactured toys, infant car seats, sleepwear, and children' s furniture, in order to return its attention to baby food. The Gerbe r Children's Centers business was considered extraneous as well, and in 1990 Gerber Products announced the sale of its child-care subsidia ry to KD Acquisition Corporation, a private investment firm based in New York. The sale was completed in July, and new ownership began the task of turning around the ailing business.

New Ownership and Restructuring in the Early 1990s

The U.S. child-care industry was highly fragmented, filled with many independent and local providers. In the early 1990s the largest child -care companies controlled only about 4 percent of the entire $15 billion market, leaving ample room for growth. The child-care indust ry was forecast to grow considerably as the number of working mothers increased, and the new owners of Gerber Children's Centers hoped to tap into this growth. As Deborah Ludwig, executive vice-president and general manager of Gerber Children's Centers, explained in a company press release, "Nearly 75 percent of all preschool children will hav e employed mothers by 1995. ... And more women with infants are choos ing to stay employed than ever before in the history of this country. This, along with an overall rise in births--4.5 percent from July 19 89 to July 1990--all point to growth opportunities for reputable prov iders of child care."

The new owners of Gerber Children's Centers wasted no time getting to work on reviving the company. Expansion, primarily in the growing fi eld of employer-sponsored facilities, was a goal, and in December 199 0 the company acquired Supertots, a provider of at-work child-care se rvices, from Ogden Services Corporation. The purchase of the ten Supe rtots locations cemented the position of Gerber Children's Centers as one of the five largest child-care providers in the nation. Among th e centers acquired by Gerber Children's Centers were those at Prudent ial Insurance Company of America in Iselin, New Jersey, and at Scheri ng-Plough Corporation in Union, New Jersey.

Another major change for the company came in 1991. Under terms of the sale, KD Acquisition agreed to give up the Gerber name. To select a new company name, Gerber Children's Centers staged a contest that res ulted in more than 3,000 entries. Two people came up with the winning name, Childtime Children's Centers, and for their efforts they were each given a $25,000 college scholarship bond.

The company moved its headquarters from Fremont, Michigan, to Brighto n to be nearer to a major airport and assembled a new management team . Harold Lewis was recruited from Thomas Cook Travel Inc. to serve as president and CEO. Lewis, who had no previous work experience in the child-care industry, implemented a new management strategy that focu sed more heavily on the business aspect of running a child-care cente r. Lewis told Crain's Detroit Business, "We make it clear to o ur center directors that there's no inconsistency at all in being pro fitable and in caring for and teaching young children. ... Without pr ofitability, we can't invest back into the business in terms of new e quipment for the children." Incentive programs that rewarded center d irectors for increasing enrollment and running more efficient operati ons were launched, and the company began offering management courses for directors that included classes on planning budgets, recruiting a nd firing staff members, marketing, and finance. Childtime also imple mented a marketing program that targeted dual-income families with yo ung children. The program used direct mail to entice prospective cust omers and marketed its services to businesses located close to Childt ime facilities to attract working parents.

The emphasis on business and management did not mean Childtime ignore d the care of children. The company installed computer systems in the majority of Childtime centers and hired an educational consultant to develop a curriculum for each age group served by the facilities. Ch ildtime educational programs emphasized the process of learning and d iscovery, and children were placed into groups depending on their soc ial, intellectual, emotional, and physical maturity. To retain busine ss, Childtime made it a policy to keep parents informed regarding the activities and progress of their children, and thus the centers dist ributed the curriculum and periodic report cards to parents.

Childtime moved its headquarters again in 1992, to Farmington Hills, Michigan, and by the end of that year business was on the upswing--of the 19 centers that had been running at half capacity at the beginni ng of the decade, 16 had recovered and become profitable. By 1993 Chi ldtime posted revenues of $44 million and a profit of $1 mill ion. In 1993 the company opened two new at-work facilities, one at St . Francis Hospital in Evanston, Illinois, and one at the Northern Ill inois Medical Center in McHenry. The following year Childtime began o perating a facility for Blue Cross and Blue Shield of Mississippi and opened the Child Development Center at the Tulsa State Office Buildi ng in Oklahoma. To realize its goal of adding about 20 new centers a year, Childtime continued to expand through strategic acquisitions as well, and in 1994 the company bought Little Learners, a child-care p rovider in Syracuse, New York. The acquisition boosted Childtime's nu mbers to 135 centers covering 14 states and Washington, D.C.

By the mid-1990s Childtime's recovery seemed complete. For the fiscal year ended March 31, 1995, Childtime enjoyed record growth. The comp any reported revenues of $55 million, an increase of $7 milli on from the previous year, and net income of about $2.7 million. Harold Lewis commented on the company's accomplishments in a prepared statement and said, "Our growth over the past three years, in a very competitive market, is primarily the result of target marketing and focused management." Lewis also noted that the company's achievements were all the more remarkable when considering the slim profit margin s in the child-care industry.

Steady Growth and Increasing Revenues in the Late 1990s

Childtime welcomed new challenges as it entered the second half of th e decade. The company reincorporated as Childtime Learning Centers, I nc. in November 1995 and completed its initial public offering in Feb ruary 1996. Childtime shares were offered on the NASDAQ at $10 a share. In addition, although the child-care industry was growing rapi dly, Childtime planned to expand steadily but conservatively, aiming to open about 25 to 30 new facilities a year until the end of the dec ade. Lewis told the Detroit News, "The problem with expanding any faster is coming up with the capital and human resources. We don' t want any handicaps. Our goal is to maintain steady growth with high -quality facilities." Each newly built center cost about $1 milli on to build. The spacious centers ranged from 6,400 to 8,000 square f eet. To ensure the success of the centers it opened, Childtime sought locations in residential areas with a high density of dual-income fa milies and in regions with numerous office buildings. The company als o looked for opportunities managing employer-sponsored, at-work facil ities.

Differing state regulations, high employee turnover, and low profit m argins all posed problems to those in the child-care industry, but th e potential for growth in the U.S. market outweighed the cons. Thomas Johnson of Kindercare Learning Centers, Inc., one of the largest chi ld-care providers in the United States, explained in Crain's Detro it Business in 1996, "There are 51 million children under the age of 12. ... Even if you total 50 of the largest for-profit child-care centers in the country, they'd be able to take care of only 1 percen t of the nation's children." By the late 1990s the industry had grown to a $30 billion market, and consolidation had begun, indicating acknowledgment by investors of the growth potential of the business. In 1997 Kindercare was purchased by Kohlberg Kravis Roberts Co., and La Petite Academy was acquired by Chase Manhattan. In 1998 Children' s Discovery Center was bought by Knowledge Universe, an investment co mpany led by infamous junk bond dealer Michael Milken, Milken's broth er Lowell, and Oracle Systems Corporation Chairman Lawrence Ellison.

Childtime's growth strategy proved successful, and the company's reve nues grew steadily. Childtime's revenues for fiscal 1997 reflected a 20 percent increase over 1996 revenues and reached $78.63 million . The company opened 37 centers that year, including the takeover of Bureautots, an at-work facility serving employees of the U.S. Census Bureau in Suitland, Maryland. Childtime also won contracts to operate centers on the campus of the New Jersey Institute of Technology and the Veterans Affairs Medical Center in Pennsylvania. In 1997 the comp any made its entry into the state of Washington when it acquired nine centers from Abundant Life Childcare Centers in Seattle. Childtime a lso secured a contract to assume operation of an at-work center spons ored by the General Services Administration in downtown Seattle.

By the end of fiscal 1999, which ended April 2, the number of Childti me facilities had grown to 270, spanning 19 states and Washington, D. C. Childtime's revenues reached $112.96 million, up from $97. 83 million in 1998. Net income also increased, from $4.35 million in 1998 to $5.1 million. Enrollment in the centers had grown fro m 26,000 to 30,000 children, and the company added 30 new facilities. Childtime gained seven centers in Nevada through an acquisition, and two contracts involved the management of child-care facilities locat ed at mass transit stops. The centers, in Baltimore, Maryland, and De s Moines, Iowa, were designed to promote mass transit commuting by wo rking parents.

In August 1999 Childtime announced that its first quarter results wou ld fall below estimates. The company blamed high electricity bills, c aused by an unseasonably warm summer, and expenses from unsuccessful acquisition negotiations for the fall in earnings. Childtime also sta ted plans to close seven of its centers, which resulted in a severe o ne-day drop in the company's share price of 13.2 percent. The company indicated that it could possibly close six to ten additional underpe rforming centers during the year, but that plans to open 35 to 40 new facilities were in place.

Childtime may have hit a few snags as it neared the 21st century, but the company was not discouraged. The company was included on "The 20 0 Best Small Companies in America," an annual list compiled by For bes, in 1999. Childtime continued to grow and expand, adding 11 n ew centers in North Carolina, Georgia, and Texas at the end of 1999 a nd winning a management contract for the Lovelace Child Development C enter, which provided services for the employees and members of Lovel ace Health Systems, a health maintenance organization. In September C hildtime partnered with ParentWatch, an Internet company that provide d parents with live video access via the World Wide Web to their chil dren at participating child-care facilities. To enhance its education al programs, Childtime formed a joint venture with Oxford Learning Ce ntres of Canada. Known as Oxford Learning Centers of America, the ven ture was designed to offer after-school tutoring and enrichment progr ams to children from kindergarten through the eighth grade.

In the course of one decade, Childtime not only had defied its demise but it also had grown from 115 centers to more than 280 facilities i n 22 states and the District of Columbia. For the first nine months o f fiscal 2000, Childtime reported revenues of $96.37 million, up from $84.88 million for the comparable period of 1999. Net income fell from $3.5 million to $3.2 million, but Childtime remain ed confident in its future. The company planned to continue growing a nd expanding to meet the demands of working families in the 21st cent ury.

Changes in the New Millennium

Indeed, growth remained a cornerstone in Childtime's strategy during the early years of the new millennium. In 2002, the company announced plans to acquire Tutor Time Learning Centers Inc., a private Florida -based firm with 235 centers in 25 states. The deal would nearly doub le the size of Childtime and secure its position as the third largest for-profit child-care provider in the United States. While both comp anies eyed the purchase as a lucrative opportunity, a former Childtim e vice-president and shareholder opposed the $22.5 million union, claiming that both companies were losing money and the deal, therefo re, would fail to bolster shareholder value. Childtime Chairman James Morgan responded to the opposition in an August 2002 Crain's Detr oit Business article stating, "Both companies have come through t roubled periods. Both companies' troubles stem from, at minimum, ques tionable growth strategies, if not flawed growth strategies, and we h ave a lot of work ahead of us."

Sure enough, with Childtime and Tutor Time losing money, it was clear that the company's management team faced a difficult road ahead. Dur ing fiscal 2002, Childtime posted a net loss of approximately $4 million. That number climbed to $18 million in 2003. Revenue was rising, however, and by fiscal 2004, Childtime began to shore up its finances and posted a net loss of slightly less than $1 million. As part of its strategy, the company looked to strengthen operations at its franchise units and by fiscal 2005, the average U.S. Tutor Tim e franchise location was generating revenue of more than $1 milli on. That year the company returned to profitability, securing net inc ome of $3.2 million.

As the company worked to integrate Childtime and Tutor Time, it adopt ed a new vision and mission statement to reflect its focus on child d evelopment and quality of life for families. The company also pledged to provide a fun and challenging work environment for its employees and provide top-notch levels of support to its franchisees. In August 2004, Childtime changed its name to Learning Care Group, Inc. Accord ing to the company, the new corporate moniker signaled its desire to remain neutral among its two flagship brands--Childtime and Tutor Tim e.

Learning Care planned to increase the number of both its franchise an d corporate locations over the next decade. As one of the largest for -profit child-care operators in the United States, Learning Care appe ared to be on track for success. Management was confident that its fi nancial problems were a thing of the past and that families would con tinue to depend on Childtime and Tutor Time centers for years to come .

Principal Subsidiaries: Childtime Childcare, Inc.; Tutor Time Learning Centers LLC; Tutor Time Learning Centers International, Inc. ; Tutor Time Franchise LLC.

Principal Competitors: Bright Horizons Family Solutions Inc.; KinderCare Learning Centers, Inc.; LPA Holding Corporation.

Chronology

• Key Dates:
• 1967: The company begins operations in Illinois.
• 1973: The original company is acquired by Gerber Products Comp any and is renamed Gerber Children's Centers, Inc.
• 1990: KD Acquisition Corporation buys Gerber Children's Center s.
• 1991: Gerber Children's Centers is renamed Childtime Children' s Centers.
• 1995: Childtime Learning Centers, Inc. is incorporated.
• 1996: The company goes public and begins trading on the NASDAQ .
• 2002: Tutor Time Learning Centers Inc. is acquired.
• 2004: The company changes its name to Learning Care Group, Inc .